Higher interest rates are putting a pinch on farmer profitability

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As the Fed works to keep inflation under control, higher interest rates have been a big part of that strategy. Research shows the Fed’s ninth district, which includes several large farm states, has seen their rates double over the last couple of years.

“Since about early 2021, interest rates for ag producers have increased around 400 basis points, and what that equates to is four percent interest. To put it into perspective, in 2021, during renewal season, a lot of ag producers were getting around four-and-a-half to 4.6 percent interest rates for their production loans. Now, in 2023, they’re being charged about eight-and-a-half percent. That’s a pretty big increase over two years. In 2023, interest expenses for ag production loans in the district totaled about $840 million. Now, to put that in comparison, in 2021, interest expenses for ag production loans were $415 million. And then, in 2022, the total interest expense paid was $490 million. So, that total interest paid in 2023 is more than double from 2021, so that’s a very large increase in two years,” said Tait Berg.

The Fed reached out to local banks in the area and found the last time interest rates were this high was around 2007.